Month: April 2015
Over the last month the ASX200 has rallied 2.4% but the insurance sector slipped 0.4%, this comes as the local bourse continues to be nerved by future margins. Insurance companies clearly carry an inherent risk by the nature of their business and when badly managed, as we have witnessed over recent years by QBE, can be a treacherous place to invest. Hence personally, I want to see real value before investing in this vulnerable sector. Overall I believe earnings risks to the sector are to the downside and stock prices are being supported by the almost panic chase for yield. Interestingly I have very different technical views on the main stocks in the sector:
• The ASX 200 continues to have a choppy session this week, today it traded as high as 5965 this morning, only to retreat and end 30 points lower at 5932.• The high yielding stocks underperformed the broader market, particularly with the ‘big 4’ banks. ANZ down 0.5% at $36.62 and Telstra (TLS) down 0.8% at $6.27.• The growth stocks are slowly gaining traction (see recent Hickman Report), Vocus (VOC) closed 3.1% higher at $6.09 and M2 Group (MTU) up 1.3% at $6.09.• With concerns of a price crisis in Iron Ore, and China reducing its tax to its domestic iron ore miners, BHP lost 1.8% to $30.19, Fortescue Metals (FMG) down 2.6% at $1.89 and RIO down 0.7% to $56.58. We reiterate, this sector is seen as a trading vehicle rather than an investment.• In the Energy Sector, Woodside (WPL) lost 2.7% to $34.13 as investors now see company as a situation stock rather than a yielding stock, as the overhang on if, or when will Royal Dutch Shell sell its ~13.6% stake after offering ~$94b for BG Group yesterday.
Yesterday, there were two pieces of significant news that hit the local equity market. Firstly, the RBA did not cut interest rates as anticipated, due to fears of an overheating Sydney property market. Secondly, Atlas Iron (AGO) went into voluntary suspension as it reviews its loss making operations. Notably this was the darling of the market in 2011, with a market capitalisation of over $3.5bn. Since then, the stock has fallen from over $4 to just 12c – see chart 1. The Iron Ore sector is getting battered on both the supply and demand side of the equation. Local heavyweights BHP and RIO are driving the price decline with massive increased supply e.g. BHP’s annual output has climbed from 144 million tonnes in 2011 to a forecast 245 million tonnes this year. Plus, as I have said previously lower world growth is inevitable due to ageing populations, led by Japan, implying no obvious improvement to the demand side of the equation in the long term.
• The ASX 200 edged 35 points higher at 5961 with the Energy and Iron Ore sector being the main drivers of today’s positive close.• The banking sector closed mixed, ANZ down 0.3% at $36.79 while the regional, Bank of Queensland (BOQ) closed 1.2% higher at $13.94. Today, subscribers received a trading alert, reducing Shawn’s position in one of the big 4 banks.• Fortescue Metals (FMG) snapped its 3-day losing streak, rallying 8.1% higher at $1.94 higher.• The Energy Sector rallied, with Santos (STO) up 4.4% at $7.41 and Woodside Petroleum (WPL) up 2% at $35.07.• The Retail Sector outperformed the broader market, Myer (MYR) rallied 8.8% at $1.425 after reports of Solomon Lew and private equity firms are said to be assessing the company for a bid.
Finger on the pulse as markets enter a critical phase
• The ASX 200 had a choppy day, trading as high as 5982 prior to the RBA’s surprise April interest rate announcement. Investors including ourselves incorrectly anticipated a rate cut this afternoon. However, the RBA loves to surprise and decided to leave rates unchanged at 2.25%, sending traders to sell their “long high yielding stocks” and close the ASX 200 only 27 points higher at 5926.• The banking sector had an incredible run ahead of the RBA meeting, with ANZ and WBC hitting their all-time highs at $37.25 and $40.07 respectively, NAB hit their 2015 highs at $39.62. Again, after the surprise RBA announcement of no change to interest rates, ANZ closed 23c higher (+0.6%) at $36.90, CBA down 19c (0.2%) at $94.21, NAB up 64c (+1.7%) at $39.33 and WBC up 21c (+0.5%) at $39.66. Subscribers received an alert on Shawn taking profit on one of the ‘big 4’.• The Iron Ore sector was closely watched today, after Atlas Iron (AGO) went into trading halt as it reviews its assets due to the falling commodity, Iron Ore. The ‘big players’, BHP and RIO however, rallied up 0.8% at $30.45 and 0.7% at $56.15 respectively. Fortescue Metals (FMG) however, suffered from this news, down 1.4% at $1.795 after being up early to $1.87.• The Gold sector rallied, as anticipated, with Newcrest (NCM) up 1.1% at $13.93 and Regis Resources (RRL) up 4.3% at $1.34.• The Oil sector also had a good day, Santos (STO) closed 2.2% higher at $7.10 and Oil Search (OSH) up 1.8% at $7.23. Subscribers also received an alert on a buy transaction on an oil sector.
Overnight Market Matters Wrap:• The US equity markets closed lower overnight. The DOW ended 78 points (-0.4%) lower at 17,698 and the S&P 500 down 8 points (-0.4%) at 2,059.• The weakness in the US was driven from its weaker economic data – US private employers reported a rise in jobs, well below expectations.• The commodities space continues to be the main event. Oil rallied 5.2% overnight at US$50.09/bb after US stock supplies were reported below consensus. On the downside, Iron Ore sold off, down 3.5% at US$49.53/t.• As Subscribers know, Shawn holds Fortescue Metals (FMG) via options and because of this, he is more flexible with the current share price, however we are closely watching this and will provide an alert should we close this position.• The ASX200 is expected to open 20 points higher this morning, around the 5,880 level.
• The ASX 200 reversed all of yesterday’s losses, ending up 38 points (+0.7%) at 5899, down only 0.4% lower for the week.• The April Rate cut hype continues to be the agenda, with the Australian Dollar down 0.2% at US75.9c, while the banking sector surged. Commonwealth Bank closed 1.2% higher at $94.40 and Bank of Queensland (BOQ) up 0.9% at $13.75.• The ‘Telco’ sector had a good run today, with iiNet (IIN) outperforming the sector ending 2.5% higher at $8.93, just shy of its all-time highs of $8.95.• Mergers and Acquisitions continue in the global equity markets, domestically, Bradken (BKN) rejected a takeover bid by a consortium of Koch Industries and Pacific Equity Partners for the amount of $2.50 a share. BKN rallied 18% at $2.29.• Iron Ore sold off another 3.5% in Asian trade today, Fortescue Metal (FMG) closed 4% lower at $1.82. Note, we had a stop loss at $1.90 for the physical stock, however, as FMG was purchase via options, we are giving more room/buffer with the current price action.• Please watch out for the Hickman Report next Monday. Have a great Easter Break.
• The ASX 200 started the month in a dull and choppy session, ending the day 30 points lower at 5860.• The driver of today’s weakness was none other than the resources sector, following overnight’s movements and Iron Ore down 2% in Asian trade. BHP Billiton (BHP) down 2.2% at $30.34, Santos (STO) down 2.9% at $6.93 and Newcrest Mining (NCM) down 1.7% at $13.14.• Macquarie Group performed well out of the financials, up 1.2% at $77.60• Vocus (VOC) outperformed the ‘telcos’ space, closing 4.1% higher at $6.11 versus Telstra (TLS) up 0.3% at $6.33 and iiNet (IIN) down 1.4% at $8.71.• This afternoon, ‘Abenomics’ architect says BOJ must ease again on April 30 – Reuters, meaning more $$$ flooding into the Japanese market to stimulate the economy.
• Last night, the US equity markets lost most of its gains from the previous day. The DOW closed 200 points (-1.1%) lower at 17,776 and the S&P 500 down 18 points (-0.9%) at 2,068.• Fear and uncertainty is slowly creeping higher, with the volatility index up 5.4%. See Fear and Greed Chart.• In the commodities markets, Crude Oil and Iron Ore continues to tumble. Oil closed -2.2% lower at US$47.60/bbl and Iron Ore down -2.5% at US$51.35/t. BHP Billiton (BHP) is expected to open 50c lower, around $30.53 this morning after its performance in the US.• The ASX200 is expected to open 25 points lower this morning, around the 5,865 level. As it is the first day of the month, there will be no surprise if we witness a positve market sentiment by the afternoon, as it is the start of the month and quarter.
Really bullish, there's more to go in the reflation rally
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